CU Confronts Own Crisis of Pocketbook

Union officials at Consumers Union, the publisher of Consumer Reports, say 129 employes signed a petition seeking the ouster of CU's executive director. Earlier statements by officials, reported in the Business & Finance section on Sunday, said 179 of the union members signed the letter to the board of directors.

By Caroline E. MayerJanuary 17, 1982

At a run-down laboratory in a former optical factory in this quiet residential town, two workers are industriously filling large trash bags with 50 pounds of make-believe garbage.

When the bags are filled, the workers drop them onto a simulated street curb to see how well the bags hold up. More often than not, the bags split apart, spilling the aluminum cans onto the curb.

Meanwhile, nearby, a group of men is installing special white floor tiles in a hall that leads to a cafeteria. After the tiles pick up a sufficient amount of dirt, they will be scrubbed with a wide variety of floor cleaners to test the products' effectiveness.

Across the alley, a half dozen employes are getting ready to begin a new series of tests on stereo equipment. They have just finished building a new 18-foot-by-13-foot listening room with a raised oak floor. When the room is filled with a rug and furniture, engineers plan to assess the equipment's performance in a more home-like atmosphere than they have used before.

Despite increasing financial and labor difficulties and a serious court setback, business continues in earnest at Consumers Union, the organization that publishes Consumer Reports.

Fearful that the publicity surrounding the organization's latest round of financial woes will discourage subscriptions, employes are determined to prove that Consumer Reports will continue to be published as it has been for the past 45 years--with the same in-depth studies of consumer products for which it has become known.

"We may be having a decrease in staff, but that's not going to hurt the quality of the work that we do," says Ralph Petrocelli, unit chairman of The Newspaper Guild at Consumer Reports, trying to persuade a visitor that the financial news is not as bad as it seems.

Even so, it is clear that Petrocelli and his colleagues are troubled by the fiscal difficulties that have forced CU to lay off more than one-eighth of its 243-member staff, reduce the size of the magazine and close its three regional offices --including one in Washington, D.C.--that have represented consumers in local and federal government agencies over the past decade.

At least 179 employes have signed a petition to the CU board of directors calling for the ouster of current management, including the executive director, Rhoda H. Karpatkin.

Their reason: CU's bank books eroded by more than $8.1 million in the past seven years, from a $2.4 million surplus in 1974 to a $5.7 million deficit last May 31, the end of its fiscal year. In the process, approximately 224 employes have been laid off.

The directors, however, continue to maintain their faith in Karpatkin. In response to the petition, the executive committee of the board issued a statement reaffirming "its full confidence in the executive director and her immediate associates."

Nonetheless, one director who declined to be named predicted that a board meeting scheduled for Jan. 22 will be a stormy one. Unfortunately, the director said, finances will not be the only problem the directors must face.

They will also have to deal with the first court suit CU has ever lost. Less than a month ago, a federal judge ordered the organization to pay $115,000 in damages, plus interest, to a manufacturer of stereo equipment on the ground that CU published "a false statement . . . with the knowledge that it was false or with reckless disregard of its truth or falsity."

CU intends to appeal the decision and says it is confident it will win, contending it was based on a faulty technicality and was unreasonable.

Even so, the ruling has stunned the organization, which has long prided itself on its technical tests and its flawless court record. "This is a major blow, which strikes at the heart of our technical competence," says one board director who declined to be named.

CU's latest financial problems began last fall when the magazine found it increasingly difficult to win new subscribers and keep old ones. Returns from a television promotional campaign launched during the baseball strike proved extremely disappointing. And with the recession underway, CU officials began to worry that their record high circulation of 3 million subscribers would soon begin to drop.

As CU's executive director Karpatkin notes, "When the economy changes and people stop buying, there is a fall-off in promotion results for all publications." But for Consumer Reports, a recession is particularly troubling because consumers don't want to subscribe to a magazine telling them how to spend their money when they don't have any money to spend.

When this prospect became clear, CU told its 78 management and nonunion officials that their scheduled salary increases for 1982 would not take effect.

Then, making matters worse, two days before Christmas the U.S. Postal Service announced a steep increase in postal rates for CU and all other nonprofit organizations.

For CU, that means a 50 percent increase in postal costs, from $4 million to $6 million a year, or more than one-sixth of its annual $33.7 million operating budget. Within hours of the announcement of the postal increase the executive committee of CU's board of directors took drastic action.

Among other things, it decided to reduce the 60-page magazine by eight pages, dropping such features as record reviews, a new design column, a regular commentary on the organization's activities by CU's executive director, and a just-launched page of "Washington notes" to alert consumers to news from Washington that affects them.

The magazine's pages also will be trimmed in size and a cheaper brand of paper used.

The editorial director of Consumer Reports, Irwin Landau, says the magazine intends to continue its normal six product reviews and one automobile report each month. But because of a 10 percent cut in the product-testing budget, there may be fewer samples tested in many reviews--28 television sets instead of 30, perhaps. CU officials say the products that are dropped will be models not widely available.

Additionally, CU has decided to close its three advocacy offices in Washington, Austin, Tex., and San Francisco. The Washington office was highly respected among business and consumer groups for its expertise and skill in dealing with government agencies and Congress over a host of consumer issues. Among other things, it has lobbied for airline and trucking deregulation, tighter federal auto safety standards, more disclosures on the effectiveness of drugs, and greater federal scrutiny of used-car dealers.

Unless Washington and its two sister offices can find a separate source of funds, they will have to close by the end of the month.

The decision to close the offices has brought strong criticism from some consumer advocates. Ralph Nader, for example, has said it "reflects extremely skewed priorities. It cuts off an important part of the organization and leaves consumers without a highly informed and effective advocate in Washington at a time when it is increasingly important," given the Reagan administration's effort to eliminate consumer programs.

Karpatkin, who has been a long-time supporter of the advocacy offices over union objections that they drained the magazine of vitally needed funds, is also troubled by the decision to close them.

But, she says, CU had no other choice, given its financial problems. "We had to remain faithful to our prime mission, which is to deliver consumer information as widely as possible to provide impartial advice to consumers on how to spend their money wisely and well," she said. Despite budget cuts, that mission won't be affected, she added.

Even so, the nonprofit organization may have to make changes in the way it has operated, directors say. "The board is going to have to start pressing for changes; it has to begin operating like a business and not a family," says one director.

Chief among the changes may be its labor policies. Although the union says management has not been overly generous, several board members disagree, noting that the organization was founded in 1936 by a group of employes who had left another consumer organization after that group refused to recognize any union.

The pro-union attitude was reflected in the magazine at the very start, with a listing of companies that labor organizations considered "unfair" in their treatment of workers. That list was dropped a few years later, but officials say the attitude toward labor is still very positive. For example, when CU closed its special subscription facilities last year, the 167 employes laid off received three weeks of severance pay for each year they had worked instead of the two weeks required by the union contract.

With money as tight as it is now, such largesse may have to end, says one board director.

The organization also will have to find more revenue. It has never accepted advertising, fearful it could taint or appear to taint the test results it published.

For similar reasons, CU has refused to rent its mailing lists to companies and groups. "That could bring in $900,000 a year," one director estimates.

In the past two years, CU has tried to expand its money-making operations, launching a new magazine for children, Penny Power (which is not expected to be in the black for at least another three years), developing syndicated radio programs and special half-hour consumer programs for cable television, and entering a small venture with Knight-Ridder Newspapers Inc. to use Consumer Reports material in an electronic-newspaper experiment now underway.